Exchange-traded funds and information asymmetry

This thesis focuses on three main questions. The first uses ExchangeTraded Funds (ETFs) to evaluate estimated adverse selection costs obtained spread decomposition models. The second compares the Probability of Informed Trading (PIN) in Exchange-Traded Funds to control securities. The third examines the intra-day ETF trading patterns. These spread decomposition models evaluated are Glosten and Harris (1988); George, Kaul, and Nimalendran (1991); Lin, Sanger, and Booth (1995); Madhavan, Richardson, and Roomans (1997); Huang and Stoll (1997). Using the characteristics of ETFs it is shown that only the Glosten and Harris (1988) and Madhavan, et al (1997) models provide theoretically consistent results. When the PIN measure is employed ETFs are shown to have greater PINs than control securities. The investigation of the intra-day trading patterns shows that return volatility and trading volume have a U-shaped intra-day pattern. A study of trading systems shows that ETFs on the American Stock Exchange (AMEX) have a U-shaped intra-day pattern of bid-ask spreads, while ETFs on NASDAQ do not. Specifically, ETFs on NASDAQ have higher bid-ask spreads at the market opening, then the lowest bid-ask spread in the middle of the day. At the close of the market, the bid-ask spread of ETFs on NASDAQ slightly elevated when compared to mid-day.

Population pharmacokinetics of single-dose intravenous paracetamol in children

Background To determine the pharmacokinetics (PK) of a new i.v. formulation of paracetamol (Perfalgan) in children ≤15 yr of age. Methods After obtaining written informed consent, children under 16 yr of age were recruited to this study. Blood samples were obtained at 0, 15, 30 min, 1, 2, 4, 6, and 8 h after administration of a weight-dependent dose of i.v. paracetamol. Paracetamol concentration was measured using a validated high-performance liquid chromatographic assay with ultraviolet detection method, with a lower limit of quantification (LLOQ) of 900 pg on column and an intra-day coefficient of variation of 14.3% at the LLOQ. Population PK analysis was performed by non-linear mixed-effect modelling using NONMEM. Results One hundred and fifty-nine blood samples from 33 children aged 1.8–15 yr, weight 13.7–56 kg, were analysed. Data were best described by a two-compartment model. Only body weight as a covariate significantly improved the goodness of fit of the model. The final population models for paracetamol clearance (CL), V1 (central volume of distribution), Q (inter-compartmental clearance), and V2 (peripheral volume of distribution) were: 16.51×(WT/70)0.75, 28.4×(WT/70), 11.32×(WT/70)0.75, and 13.26×(WT/70), respectively (CL, Q in litres per hour, WT in kilograms, and V1 and V2 in litres). Conclusions In children aged 1.8–15 yr, the PK parameters for i.v. paracetamol were not influenced directly by age but were by total body weight and, using allometric size scaling, significantly affected the clearances (CL, Q) and volumes of distribution (V1, V2).

Leading edge forecasting techniques for exchange rate prediction

This paper describes how modern machine learning techniques can be used in conjunction with statistical methods to forecast short term movements in exchange rates, producing models suitable for use in trading. It compares the results achieved by two different techniques, and shows how they can be used in a complementary fashion. The paper draws on experience of both inter- and intra-day forecasting taken from earlier studies conducted by Logica and Chemical Bank Quantitative Research and Trading (QRT) group's experience in developing trading models.

The microstructure of the foreign exchange market:the determinants of bid-ask spreads in the foreign exchange market

The purpose of this thesis is to shed more light in the FX market microstructure by examining the determinants of bid-ask spread for three currencies pairs, the US dollar/Japanese yen, the British pound/US dollar and the Euro/US dollar in different time zones. I examine the commonality in liquidity with the elaboration of FX market microstructure variables in financial centres across the world (New York, London, Tokyo) based on the quotes of three exchange rate currency pairs over a ten-year period. I use GARCH (1,1) specifications, ICSS algorithm, and vector autoregression analysis to examine the effect of trading activity, exchange rate volatility and inventory holding costs on both quoted and relative spreads. ICSS algorithm results show that intraday spread series are much less volatile compared to the intraday exchange rate series as the number of change points obtained from ICSS algorithm is considerably lower. GARCH (1,1) estimation results of daily and intraday bid-ask spreads, show that the explanatory variables work better when I use higher frequency data (intraday results) however, their explanatory power is significantly lower compared to the results based on the daily sample. This suggests that although daily spreads and intraday spreads have some common determinants there are other factors that determine the behaviour of spreads at high frequencies. VAR results show that there are some differences in the behaviour of the variables at high frequencies compared to the results from the daily sample. A shock in the number of quote revisions has more effect on the spread when short term trading intervals are considered (intra-day) compared to its own shocks. When longer trading intervals are considered (daily) then the shocks in the spread have more effect on the future spread. In other words, trading activity is more informative about the future spread when intra-day trading is considered while past spread is more informative about the future spread when daily trading is considered

Impact of derivatives trading on emerging stock markets:some evidence from India

It is generally accepted that the introduction of financial derivatives that facilitate hedging is an important step in the development of stock markets. However, financial derivatives can potentially increase volatility in the underlying cash market, which might be detrimental to the development of the stock market itself. Using data from India, we examine one possible route through which derivatives trading can increase cash market volatility: expiration day effect. Our results indicate that expiration of equity derivatives contracts does not have any effect on the intra-day volatility of the market index, and it reduces the volatility of inter-day returns to the index.